A Lady Bird deed in Florida is a legal document which transfers property upon death inexpensively and without the need for a probate legal court proceeding. A lady bird deed allows the current property owner to use and control the property during the owner’s lifetime, while the property automatically transfers upon death to designated beneficiaries. The lady bird deed is legal in the state of Florida.
In Florida, a Lady Bird deed is also called an enhanced life estate deed. The Lady Bird deed is a version of a life estate deed with enhancedpowers reserved for the original owner(s) of the property.
There are no Florida statutes specifically authorizing lady bird deeds. However, the general legal consensus is that Lady Bird deeds are authorized under common law, particularly by the Florida Supreme Court in Oglesby vs. Lee, 73 So. 840 (Fla. 1917) and Aetna Ins. Co. vs. La Gasse, 223 So.2d 727 (Fla. 1969).
Florida is one of the few states where a lady bird deed is legal. The states which offer Lady Bird deeds include Florida, Michigan, Texas, Vermont, and West Virginia. Some other states may have what is called a transfer on death deed. Otherwise, property in those states must usually be put into a trust to avoid probate upon the owner’s death or else be held with rights of survivorship.
The foregoing document makes the probate process easier or may avoid it entirely. The Enhanced Life Estate deed (also known as the Lady Bird deed) has inherit powers permitting a property owner to retain control over real property during his/her/their lifetime. Equipped with the power to transfer real property located in Florida to others upon the owner’s death (identified as “remaindermen” within the deed), exclusive of a Last Will & Testament and outside of the probate process, the Lady Bird Deed is an attractive and useful tool to customize even the most complicated estate planning regime. There is no doubt, avoiding probate coupled with a grantor’s advantage to maintain control over the real property, where the grantor can sell, lease, gift or encumber the real property during their lifetime, makes the Enhanced Life Estate/Lady Bird Deeds something to seriously consider by Florida homeowners.
A Lady Bird deed must be recorded to be effective. Once the property owner executes the Lady Bird deed, the deed should be recorded to document the conveyance as part of the property’s legal chain of title. Recording the Lady Bird deed should not involve significant documentary stamp taxes, even if the property is mortgaged.
A property owner can change the beneficiaries under a Lady Bird deed even after the original Lady Bird deed is recorded. The owner must execute and record a second Lady Bird deed that names the new person or people (i.e., remaindermen) whom the owner chooses to inherit the property.
Most major title insurance companies fully understand Lady Bird deeds and are not concerned about insuring the title of a property subject to a Lady Bird deed. Title companies should not require the signature or consent of the people listed as remaindermen (similar to designated beneficiaries) when the Enhanced Life Estate or Lady Bird owner sells the property since the beneficiaries or remaindermen have no vested property interest during the owner’s lifetime.
Some smaller or less experienced title insurance companies may not understand a Lady Bird deed, and these companies may require the remaindermen to sign a release. Even worse, the companies may require any judgment holders against the remaindermen to release any claim of lien against the properties. These requirements stem from a lack of understanding about how Lady Bird deeds work.
A Lady Bird deed allows a property owner to transfer property upon death while avoiding probate. The deed is inexpensive, revocable, and simple compared to a Trust. Again, some of the advantages of Lady Bird deed include:
- Avoids probate. A Lady Bird deed allows a property to transfer on death to named beneficiaries without probate.
- Low cost. A Lady Bird deed can be obtained for a relatively low cost compared to a more complicated and expensive Living Trust.
- Simple. A Lady Bird deed does one thing and does it well: it transfers a person’s real property upon the death of the said property owner.
- Revocable. The property owner is free to change their mind at any point during their lifetime. The property owner can enter into a new deed which gives the remainder interest to someone else or cancels the lady bird deed entirely.
- Gift Taxes. Transferring property by Lady Bird deed does not trigger a gift tax. The transfer is not a completed gift during the lifetime of the property owner.
- Capital Gains. In addition, the beneficiary of the Lady Bird deed should still enjoy a step-up basis in the property. A stepped-up basis means that if the property is eventually sold by the beneficiary/remaindermen, the remainderman will pay income tax only on the appreciation in value from the date when the original property owner died and not when the subject property was originally purchased.
- Medicaid Eligibility. Said deed does not risk the Grantor’s Medicaid eligibility because it is not considered a “transfer” until the Grantor/Owner passes away.
- Property Taxes. The Owner keeps their homestead real estate tax exemption, and the county will not reassess the property to raise taxes.
Some disadvantages to Lady Bird deeds in Florida include:
- Lack of Asset Protection. A creditor of the current owner may place a lien on the property, other than a homestead (i.e., primary residence), conveyed by a Lady Bird deed.
- Constitutional Restrictions. A person cannot use a Lady Bird deed to disinherit a spouse or minor child if homestead real property.
- Unexpected Deaths. If the holder of the remainder interest dies before the life tenant/owner dies, it may become unclear as to what happens to the property when the original life tenant or owner later dies.
- Changes to the Estate Plan. It will require extra work for the original owner to change their plan should they later decide not to leave the property to the named remaindermen.
Despite the disadvantages, individuals and families in Florida often use Lady Bird deeds as a simple, inexpensive way to transfer their home upon death without probate.
The following are a few more benefits relating to Florida’s Enhanced Life Estate/Lady Bird Deed:
- Individuals will NOT lose their homestead protection. The Enhanced Life Estate Deed or Lady Bird Deed enables a Florida real estate property owner to maintain their homestead and other applicable exemptions (both creditor and tax) if homestead protections apply, even though the grantor holds a type of life estate during their lifetime.
- It is automatic. For a proper conveyance to take place, special Florida caselaw language must be contained or written within the Lady Bird Deed. Once a properly executed Enhanced Life Estate Deed is executed and the life estate owner dies, the transfer to the named remaindermen is automatic rendering a stress-free process for the named beneficiaries/remaindermen.
- It is relatively easy. The Florida real property will transfer to the individual (i.e., remainderman) named in the deed upon the death of the grantor/last surviving owner without the need to prepare an added deed to complete the transfer. Moreover, it is an easy transfer process. The beneficiary of the property may have to record the death certificate and file a statement of facts with the appropriate county to affirm ownership but there is no need to prepare additional formal legal documents to complete the transfer.
- The owner is allowed to change their mind. Equipped with the power to control the subject property, the Lady Bird Deed is so much more than just a life estate. It enables the owner to live in the property for their entire lifetime and also reserves more than just that option. The owner, during their lifetime, reserves the right to sell, lease, gift, and encumber the property without the remaindermen’s consent or notice. If the Florida homeowner is changes their mind, Florida’s Enhanced Life Estate Deed enables the current owner control over the property where the grantor can simply execute another deed to better suit their changes wishes.
- It is cost effective. The Lady Bird Deed can be used as an inexpensive estate plan for people whose Florida residence is the primary or only asset which may need to be transferred upon death. Where probate is time consuming and can cost thousands of dollars, the Lady Bird Deed is a desirable alternative.
- The deed can serve as a Last Will & Testament substitute. The owner may name more than one remainderman who will take over the property upon his or her death without ever having to prepare a proper Florida Last Will & Testament. A Lady Bird Deed may also have a provision for descendants of a remainderman or alternate of said beneficiary who predeceases the original owner.
- Remaindermen also hold creditor protections. The remaindermen receive the property only if the grantor still owns it at the time of death, and since the owner can always change his or her mind prior to death, the remaindermen has no interest in the real property throughout the owner’s life. As such, the remaindermen are protected from creditors during the owner’s lifetime. Since the remaindermen really have no interest in the property until the grantor’s death, the real property is protected during the owner’s lifetime from claims by named remainderman creditors. HOWEVER, Tax liens are different. An IRS lien against a remainderman attaches to the property once the remainderman is named on the lady bird deed.
- Consent is not needed. The remaindermen have no rights to the Florida real property whatsoever during the owner’s lifetime, which helps because the owner does not need their consent and the remainder’s creditors cannot claim any rights to the real property. This is one of the major differences between a traditional life estate (where consent is needed) and an Enhanced Life Estate or Lady Bird deed where the grantor or current owner maintains complete ownership control.
- Lady Bird Deeds can be executed remotely. In Florida, deeds must be signed before a notary and two witnesses. As of January 1, 2020, Florida Remote Online Notarization laws allow deeds, such as the Lady Bird or Enhanced Life Estate Deed, to be signed remotely before a notary and two witnesses using video and audio online technology.
A Lady Bird deed or Enhanced Life Estate deed is a useful estate planning tool, however, despite its many benefits, it might not be suitable for all people who own Florida real estate. It is best to discuss the matter with an experienced Florida estate planning attorney.
The foregoing is just a general overview of the subject of Lady Bird Deeds in Florida.
If you have any additional Questions regarding the foregoing or have any legal issue or concern, please contact the law firm of CASERTA & SPIRITI in Miami Lakes, Florida.